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Eric Jackson was sitting in his hotel room on Sea Island, Ga., watching his kids splash around in the pool, when he clicked “publish” on his latest blog post for Forbes.com. Jackson, an influential hedge-fund manager, had become fixated on Yahoo and the efforts of its chief executive, Marissa Mayer, to turn around the enormous yet floundering Internet company. It was July 21, 2014, almost exactly two years to the day since Mayer took over, arriving at Yahoo’s headquarters to an unfurled purple carpet and Shepard Fairey-style “HOPE” posters bearing her face. During those 24 months, Mayer eliminated dozens of products and rebooted others. She acquired 41 start-ups and even hired Katie Couric. But just one week earlier, Mayer announced the company’s lowest quarterly earnings in a decade. Jackson argued in his post that Yahoo no longer made sense as an independent entity. Instead, it might be a nice takeover target for one of the tech industry’s Big Four: Apple, Facebook, Amazon or Google. Jackson’s conclusion wasn’t based simply on a discouraging quarter. It was a result of an eye-opening calculation he had performed — what’s known on Wall Street as a sum-of-the-parts valuation. Yahoo had a market value of $33 billion at the time, but that figure owed largely to its stake in Alibaba, the Chinese Internet conglomerate. According to Jackson’s valuation, Yahoo’s stake in Alibaba was worth roughly $37 billion. But if you subtracted that position, the entirety of Yahoo’s core business, all its web products and content sites, actually had a market valuation of negative $4 billion. A conquering company could theoretically buy Yahoo, sell off its Asian assets and absorb its business units free. This sort of sale would make a lot of money for Yahoo’s shareholders, Jackson wrote, even if it meant gutting the company and losing Mayer as C.E.O. after only two years. A day after his post, Jackson received an unusual email. A major Yahoo shareholder had written to explain that he and many other investors, along with numerous employees and advertisers, had themselves become extremely frustrated with Mayer. Her turnaround plan, he said, had failed. The start-ups she acquired (most notably the social blogging platform Tumblr, which Yahoo bought for $1.1 billion in 2013) had failed to revive the company’s flat revenues of roughly $5 billion per year. Nor had Mayer succeeded, despite her track record overseeing Google’s search engine, in turning any of Yahoo’s many products into an industry leader. There were also a number of embarrassing management setbacks. The best outcome for Yahoo, the shareholder said, might be to sell the company. One day later, on July 23, Jackson published a subsequent Forbes column that outlined parts of the shareholder’s argument. It went viral within the investment community, and in the following days, Jackson fielded several calls from other significant Yahoo investors, including managers of large mutual funds and hedge funds, who encouraged him to continue his campaign. Jackson’s own fund didn’t have the capital to mount an offensive, which would require buying a large stake in Yahoo and using it as leverage to effect changes within management. But he knew someone who might. Jeffrey Smith, who ran an activist fund called Starboard Value, had recently led such a campaign against AOL, leading the company to eliminate its money-losing local news network, Patch. While still on vacation, Jackson looked up Smith’s email on his Bloomberg terminal. Within hours, the two men were on the phone with a handful of associates from Starboard. Continue reading the main story Jackson’s dire calculation of Yahoo’s value would soon be reinforced in the markets. On Sept. 19, Alibaba went public on the New York Stock Exchange, closing at $93.89 per share. But as Alibaba’s stock soared, Yahoo’s dropped, an indication that the market seemed to concur with Jackson’s analysis: Yahoo’s core business was worth less than zero dollars. A week later, Smith published an open letter calling for Yahoo to divest itself of its Alibaba assets, return the money to its shareholders and then merge with AOL. Redundancies could be eliminated, thousands of people could be fired and two former Internet superpowers would be downsized into a single and steady (if uninspiring) entity that sold ads against its collective online properties — news, blogs and Web products like email, maps and weather. “We trust the board and management will do the right thing for shareholders, even if this may mean accepting AOL as the surviving entity,” Smith wrote. Dynamic and wildly profitable Internet companies like Facebook and Google may get most of the attention, but Silicon Valley is littered with firms that just get by doing roughly the same thing year after year — has-beens like Ask.com, a search engine that no longer innovates but happily takes in $400 million in annual revenue, turning a profit in the process. Mayer, who is 39, was hired to keep Yahoo from suffering this sort of fate. She believed it could again become a top-tier tech firm that enjoyed enormous growth and competed for top talent. And two years in, Mayer, who has a tendency to compare herself with Steve Jobs, wasn’t about to abandon her turnaround plan. On the afternoon of Oct. 21, she entered a web TV studio on Yahoo’s garrisonlike campus to present the company’s latest quarterly results. But the presentation effectively became a response to Starboard’s campaign. Even though Yahoo’s revenue had decreased in five of the past six quarters, Mayer attested that she had “great confidence in the strength of our business.” Mayer’s resolve was consistent with other remarks she had made at the time, in both public and private. She highlighted various signs of promise. Yahoo’s mobile revenues, while still small, had doubled from the previous year. Display advertising revenue was down 6 percent, but the number of ads sold had actually increased by 24 percent. Yahoo was engaging more mobile users than ever before. Mayer didn’t bother talking about a potential AOL takeover. Her goal was nothing less than to return her company to the level of the Big Four. “We believe deeply in the future potential of Yahoo,” she said into the camera, “and the transformation we are pursuing to bring an iconic company back to greatness.” Generally speaking, there are only a few ways to make money on the Internet. There are e-commerce companies and marketplaces — think Amazon, eBay and Uber — that profit from transactions occurring on their platforms. Hardware companies, like Apple or Fitbit, profit from gadgets. For everyone else, though, it more or less comes down to advertising. Social-media companies, like Facebook or Twitter, may make cool products that connect their users, but they earn revenue by selling ads against the content those users create. Innovative media companies, like Vox or Hulu, make money in much the same way, except that they’re selling ads against content created by professionals. Google, which has basically devoured the search business, still makes a vast majority of its fortune by selling ads against our queries. Continue reading the main storyContinue reading the main story Yahoo essentially invented the online-advertising business. In 1994, two graduate students at Stanford, Jerry Yang and David Filo, dreamed up a way to help early users navigate the web. They picked URLs that they each liked — beginning with around 100 links, including one for Nerf toys and one dedicated to armadillos — and listed them on a page called “Jerry and David’s Guide to the World Wide Web.” Within a year, their guide had to be divided into 19 categories (art, business, etc.) and was generating one million clicks a day. In 1995, the year Yahoo started selling ads, a former company executive estimated that the entire market was about $20 million. By 1997, Yahoo’s ad revenues alone were $70.4 million. The next year, they were $203 million. To keep up with the growth, Yahoo quickly expanded beyond its directory to create a multitude of ad-supported products. The company aimed to be all things to all web users, and for most of a decade, it was a wildly successful strategy. In 1997, Yahoo added chat rooms, classified ads and an email service. In 1998, it introduced sports, games, movies, real estate, a calendar, file sharing, auctions, shopping and an address book. Even during the crash of the Internet bubble, a profusion of more traditional advertisers began to migrate from print to digital. The search business, in particular, was growing enormously. In 2002, Yahoo’s first full year monetizing search results with attendant ads, its revenues reached $953 million. In 2003, they eclipsed $1.6 billion. In 2004, they grew again to $3.5 billion. At its peak, Yahoo’s market capitalization reached $128 billion. It was $20 billion larger than Berkshire Hathaway, Warren Buffett’s holding company. But this growth obscured a looming problem. While Yahoo was busy enlarging its portfolio, a new generation of start-ups was focusing on perfecting one single product. Soon enough, Yahoo was losing out to eBay in auctions, Google in search and Craigslist in classifieds. Then Facebook came along, replacing Yahoo as the home page for millions of people. The advertising dollars soon followed, and Yahoo’s revenue flattened. Between 2007 and 2012, the company churned through four C.E.O.s. The last of them, Scott Thompson, resigned in disgrace after five months when a large activist shareholder, Dan Loeb, published an open letter accusing him of fabricating a computer-science degree. After Thompson’s resignation, in May 2012, Yahoo was worth less than $20 billion on the public markets. As an ad-supported business, Yahoo had only two ways to increase its revenue. It could display more ads by attracting more people to its products — a plan that would require inventing (or acquiring) new products, improving old products or some combination. Alternately, it could elevate ad prices by upgrading its content. In the opinion of Thompson’s interim successor, Ross Levinsohn, Yahoo would be best positioned as such a “premium” content company. In Levinsohn’s vision, Yahoo had fallen so far behind its competitors in building successful back-end technology, like real-time advertising auctions and search, that it should cede most of those businesses altogether. In the process, the company could also shed more than half of its 15,000 employees, and home in on its best asset: reach. Some 700 million people still visited Yahoo’s home page every month, making it almost seven times as large as the combined online audiences of The New York Times, The Daily Mail and The Washington Post. Levinsohn believed that offering this audience better content could raise Yahoo’s earnings by up to $2 billion in two years. Continue reading the main storyPhoto But in Silicon Valley, the big money, and most of the prestige, is in making cool products. This is partly because product businesses, based on technology, are easier to scale than content ones, which require more human labor. It also reflects a cultural bias. The Valley’s greatest companies, from Hewlett-Packard onward, have been built around technological ingenuity. Tech executives know how to hire engineers and designers; they’re less adroit at recruiting editors or producers. When Loeb joined the Yahoo board, he recruited Michael J. Wolf, the former president of MTV, and the two consulted the noted venture capitalist Marc Andreessen about who should become the next C.E.O. of Yahoo. Andreessen made the case for a product executive. Loeb’s decision was facilitated by another factor too. At the time, Google was valued at $250 billion; Facebook was worth $100 billion. Loeb opted to refashion Yahoo in their image. And so, in the spring of 2012, Loeb and Wolf began coveting a product C.E.O. The two board members asked the executive recruiter Jim Citrin of Spencer Stuart to approach Marissa Mayer, the wunderkind engineer who oversaw the user interface of Google’s search engine. Citrin cautioned that Mayer, who was among the first 25 people to join Google back in 1999, appeared to be a lifer. She had already earned hundreds of millions of dollars following Google’s 2004 I.P.O. and presumably had her pick of job opportunities. Still, he said he’d reach out to her. Unknown to Citrin, however, Mayer was interested in pursuing her own turnaround of sorts. A couple of years earlier, she lost a turf battle to a powerful engineer within Google and was quietly reassigned to oversee Google Maps and other so-called local products. Mayer tried to spin the move positively, but that became harder after Larry Page, one of the company’s founders, regained the role of C.E.O. and removed Mayer from the group of executives reporting to him. According to one friend, Mayer had been observing the Yahoo vacancy for months. After Citrin called her cellphone, she told him she was interested. The challenge of redirecting Yahoo was immense, but the next C.E.O. would have one tremendous advantage. In 2005, Yahoo invested $1 billion for a 40 percent stake in a little-known company called Alibaba. It turned out to be a remarkably prescient bet. Alibaba is commonly referred to as the Google of China, but it’s something more akin to the country’s version of Google, eBay and Amazon all in one — a web portal that provides e-commerce and business to business services. Weeks before Mayer was hired in July 2012, Yahoo sold half its 40 percent stake back to Alibaba for $7.1 billion. As a part of that deal, Alibaba agreed to hold an initial public offering sometime before the end of 2014. Suddenly the easiest way for Wall Street to make a bet on Alibaba — a hot start-up in a hot market, guaranteed an I.P.O. — was through an investment in Yahoo. The arrangement ensured that Yahoo’s stock, for the next two years, would be tied to the performance of Alibaba rather than that of its own core business. This was a tremendous benefit to an incoming C.E.O., essentially offering a two-year air cover. Without having to manage the company’s stock price, inevitably one of a chief executive’s most distracting tasks, Mayer could focus on acquiring start-ups, jump-starting products and making strategic changes. Moreover, in two years she would be able to use the Alibaba cash to reinvest in her putative growth. When Citrin offered the job, she accepted. Continue reading the main story Turning around a technology company has been historically rare. Tech companies invent new ways of doing things, but as they expand, often metastatically, they tend to shift their focus toward protecting their booming business rather than investing in new disruptive ones. Inevitably some newer company, usually financed by a wealthy venture-capital firm, beats them to it. It’s a cycle that happens in all industries, but everything moves faster in technology — too fast, usually, to allow for turnarounds. Steve Jobs may have resurrected Apple, and IBM was able to reinvent itself from a P.C. company into a business-services firm. But the next best example is probably Jeffery Boyd’s deliverance of Priceline — not exactly a titan of the industry. And his plan was almost a total restart, including dialing down the “name your price” pitch line and switching the company’s strategy from air travel to hotel bookings. In order to revive Yahoo as a product company, Mayer would try to treat it as a giant start-up itself. Hours after entering Yahoo’s complex on the morning of July 17, 2012, she set up her computer to log into the company’s code base so she could personally make changes, much like the founder of a tiny tech firm might do. During her second week, she devised a weekly all-staff update, called “F.Y.I.,” that she would host at URL’s, a cafeteria on the Yahoo campus. (Employees pronounce it “Earl’s.”) She also tried to make the company a more desirable place to work. Yahoo employees, until then confined largely to BlackBerrys, were given iPhones or Samsungs as their company phones. All meals at URL’s would henceforth be free. For years, the partitions between the bathroom stalls didn’t go all the way to the wall. People hung toilet paper to try to fill the gaps. Soon after Mayer’s arrival, new partitions were installed. Mayer saw her plan as a return, in a sense, to Yahoo’s original mission. Yahoo grew in popularity and value during the late 1990s, when it was the most user-friendly way to peruse the World Wide Web. Now, Mayer believed, it could ride the shift from P.C.s to smartphones and make the mobile web-browsing experience more user-friendly too. Yahoo, in other words, would need to become a really great apps company. Mayer wanted to narrow its product portfolio down to approximately a dozen from more than 100. She and her C.M.O., Kathy Savitt, did some market research and found a list of common user activities on mobile devices. She called this list the “Daily Habits,” and they included news-reading, checking weather, reading email and photo-sharing. Mayer was determined to ensure that Yahoo had the best mobile app for each. This was going to be difficult. Previous Yahoo C.E.O.s had underinvested in mobile-app development, plowing money into advertising technology and web tools instead. A couple of days into the job, Mayer was having lunch at URL’s when an employee walked up to her and introduced himself as Tony. “I’m a mobile engineer,” Tony said. “I’m on the mobile team.” Continue reading the main story Mayer responded to Tony, “Great, how big is our mobile team?” After some back and forth, Tony replied that there were “maybe 60” engineers. Mayer was dumbfounded. Facebook, for instance, had a couple of thousand people working on mobile. When she queried the engineering management department, it responded that Yahoo had roughly 100. “Like an actual hundred,” Mayer responded, “or like 60 rounded up to 100 to make me feel better?” The department responded that it was more like 60. Companies like Facebook and Google are known for their fast-paced product updates. Yahoo, by contrast, was sluggish. Yahoo Mail, with its 30 billion emails a day, was arguably the company’s most important product. But despite the decline in desktop email use, Yahoo hadn’t built mail apps for smartphones. It had simply made the Yahoo Mail website usable on smaller mobile screens. Now an app was going to be designed for four separate platforms, including both Apple’s and Google’s mobile operating systems. During her first meeting with the executive in charge of Mail and Messenger, Vivek Sharma, Mayer said that she wanted it done by December. (Mayer declined to comment for this article.) Mayer subsequently immersed herself in the redesign. Months into her tenure, she was meeting with Sharma’s team regularly in a conference room that started to look more like a design studio: projectors hung from the ceiling, rendering screens displayed on the wall. All around, dozens of foam core boards were pinned with ideas. Mayer would regularly interrogate designers about the minutest details of display and user experience. By early December, one day before Yahoo Mail was set to release, she convened a meeting at Phish Food, a conference room in the executive building of Yahoo’s campus, to talk about the product’s color. For months, the team had settled on blue and gray. If users were going to read emails on their phones all day long, the thinking went, it was best to choose the most subtly contrasting hues. But now, Mayer explained, she wanted to change the colors to various shades of purple, which she believed better suited Yahoo’s brand. Some around the table were encouraged that their C.E.O. refused to release a product that she was less than fully satisfied with. If changing a few pixels led to an increase of 0.01 percent more users, that could translate to millions of dollars in ad revenue. Others, however, were visibly furious. According to one senior executive, Sharma’s body language changed the moment Mayer issued her request. He looked deflated. Altering the color of such an intricate product would require that members of his team spend all night adjusting colors in thousands of places. He slumped off and prepared to tell his staff the bad news.